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Three Pairs Hedging

  • #21
  • Feb 6, 2011 9:50am Feb 6, 2011 9:50am
Quoting cash4u2
I did not use any signals or indicators, the EA opened orders with the same lotsize on the three pairs and closed it in profit. After the close it opened the next trades directly.
But I guess an useful indicator could speed up the positive trades.
The only edge I can see in this idea is the inefficiency in lot sizing. By keeping all of the lot sizes the same, even though they are not equivalent in base deposit currency causes a near but not perfect hedge. It took me a minute to figure out where the edge was. The not perfect hedge is where the profit or loss can be made.

This is interesting to me, because you can have a loss on this, but it probably will not be very much and you can just wait it out for it to revert to the profit side and then close the trade. This method does not require any stop losses, because the three can never drift very far apart.
  • #22
  • Feb 6, 2011 9:52am Feb 6, 2011 9:52am
Quoting smjones
The only edge I can see in this idea is the inefficiency in lot sizing. By keeping all of the lot sizes the same, even though they are not equivalent in base deposit currency causes a near but not perfect hedge. It took me a minute to figure out where the edge was. The not perfect hedge is where the profit or loss can be made.
OK, but how would you calculate the lotsize for the single pairs?
  • #23
  • Feb 6, 2011 9:55am Feb 6, 2011 9:55am
I used correlation trades many times before, but correlations do change.

It's all good until you hit the wall eventually. For example CHF/JPY (USDCHF /USDJPY and so on)

pairs are usually correlated but ones I catches when CHF goes weak and JPY strong,

that's when I get killed last time.. It will eventually go back to normal,

but you will not stand such DD's.. And I actually was using charts and

grab correlation trades only when 2 pairs was a part at most, if you going

to buy just everywhere you like without even looking? Be my guest

This thread will die like another 100 discussing correlated trades.

Up to date nobody was able to generate any sustainable profit from

it.. I'll be glad if your method would work.. Good luck.
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  • #24
  • Edited 1:11pm Feb 6, 2011 9:55am | Edited 1:11pm
Quoting cash4u2
OK, but how would you calculate the lotsize for the single pairs?
I would not want to. I think how you are doing it is fine and is it's profit. If you adjust the lots sizes to form a perfect hedge, there is no loss and no profit and a transaction cost, which would be a net loss.

To add, really there is no edge here, because you are hoping to gain with a money management technique. That is not an edge, sorry
  • #25
  • Feb 6, 2011 9:55am Feb 6, 2011 9:55am
Quoting SkyzerFX
I used correlation trades many times before, but correlations do change.

It's all good until you hit the wall eventually. For example CHF/JPY

pair are usually correlated but ones CHF goes weak and JPY strong

that's when I was killed last time.. It will eventually go back to normal,

but you will not stand such DD's.. And I actually was using charts and

grab correlation trades only when 2 pairs was a part at most, if you going

to buy just everywhere you like without even looking? Be my guest

This thread will die like another 100 discussing...
This method really has nothing to do with correlations at all.

Why do you bring up correlations?
  • #26
  • Feb 6, 2011 9:59am Feb 6, 2011 9:59am
Quoting smjones
I would not want to. I think how you are doing it is fine and is it's edge. If you adjust the lots sizes to form a perfect hedge, there is no loss and no profit and a transaction cost, which would be a net loss.
Thx for your answer! I just wanted to double check, because I was thinking exactly the same ;-)
  • #27
  • Feb 6, 2011 10:03am Feb 6, 2011 10:03am
Quoting cash4u2
Thx for your answer! I just wanted to double check, because I was thinking exactly the same ;-)
Well the key here is no matter whether you use a fixed lot size or a percent of margin or a percent of account equity, is to absolutely keep all three lot sizes the same. You could figure out a optimized differential between the lot sizes, but that would be the stuff of a quant and would only slightly improve performance, for a retail trader like we are.
  • #28
  • Feb 6, 2011 10:04am Feb 6, 2011 10:04am
Quoting smjones
This method really has nothing to do with correlations at all.

Why do you bring up correlations?
Is that so? very good, than how do you hedge?

It's the same thing.. Basically when you try to hedge you are using

negative or positive correlated pair.. For example if your EU LONG trade is

tanking you can try to hedge it by shorting CABLE (correlated pair)..

Same here if you grab correlated pair correlation can go in loss or profit, - you just wait when it

goes in ++++ and close the trades.

Try it on Demo first, cause I know the long term outcome..
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  • #29
  • Feb 6, 2011 10:06am Feb 6, 2011 10:06am
Quoting SkyzerFX
Is that so? very good, than how do you hedge?

It's the same thing.. Basically when you try to hedge you are using

negative or positive correlated pair.. For example if your EU LONG trade is

tanking you can try to hedge by shorting CABLE (correlated pair)..
Are you trying to waste time here. please read my last few posts I fully explained it. You are pulling my leg, right?

You are thinking in terms of pairs and we are talking in terms of currency offsets.
  • #30
  • Feb 6, 2011 10:09am Feb 6, 2011 10:09am
Quoting smjones
Well the key here is no matter whether you use a fixed lot size or a percent of margin or a percent of account equity, is to absolutely keep all three lot sizes the same. You could figure out a optimized differential between the lot sizes, but that would be the stuff of a quant and would only slightly improve performance, for a retail trader like we are.
And consider to have smaller TP, for lot size 1 lot use like 40-50$ because

sometimes it could hit 50$ few times than go to +$80 and then go back

to Loss, better grab smaller profit more often..
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  • #31
  • Feb 6, 2011 10:10am Feb 6, 2011 10:10am
Quoting SkyzerFX
Is that so? very good, than how do you hedge?
It's the same thing.. Basically when you try to hedge you are using
negative or positive correlated pair.. For example if your EU LONG trade is
tanking you can try to hedge by shorting CABLE (correlated pair)..
Correlation is important for three pairs hedging, because you need to know, where to sell and where to buy. But it is much safer like hedging two pairs.
Three pairs is like, two pairs to equalize the minus and plus and the third pair is the profitmaker.
  • #32
  • Feb 6, 2011 10:11am Feb 6, 2011 10:11am
Hi cash4u2 and thanks for sharing your strategy.

I noticed that the 3 trades opened on 2010/11/22 were closed for a net loss. Why didn't you wait for them to be in profit and close them then?

thanks
Vlan
  • #33
  • Feb 6, 2011 10:13am Feb 6, 2011 10:13am
Quoting smjones
You are thinking in terms of pairs and we are talking in terms of currency offsets.
I know you are using 2 to 1 like buy 2 pairs sell 1 and so on..

but it's still based on pair correlations. Anyways, no problem, however

you name it.. This exact system/method was presented here about

4-5 month ago.. I even have EA somewhere.. You can try, maybe you

got extremely lucky
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  • #34
  • Feb 6, 2011 10:14am Feb 6, 2011 10:14am
Quoting cash4u2
Correlation is important for three pairs hedging, because you need to know, where to sell and where to buy. But it is much safer like hedging two pairs.
Three pairs is like, two pairs to equalize the minus and plus and the third pair is the profitmaker.
Thanks for the info and discussing your method. I think that is it in a nutshell for me. I wish you the best with it.

Kind Regards
  • #35
  • Feb 6, 2011 10:15am Feb 6, 2011 10:15am
Quoting SkyzerFX
This exact system/method was presented here about 4-5 month ago.. I even have EA somewhere.. You can try, maybe you
got extremely lucky
SkyzerFX, would be great, when you already have got an EA for this. Maybe you can post it ;-)
  • #36
  • Feb 6, 2011 10:19am Feb 6, 2011 10:19am
Quoting cash4u2
Correlation is important for three pairs hedging, because you need to know, where to sell and where to buy. But it is much safer like hedging two pairs.
Three pairs is like, two pairs to equalize the minus and plus and the third pair is the profitmaker.
Exactly but it could be a loss maker as well, since I don't think

there is 100% exact weight 2 against 1 pairs.. I can find that EA and run it

again for those pairs on Demo, worth to try it out one more time..

Thank you.

P.S

Ok lemme dig for EA, should be somewhere
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  • #37
  • Feb 6, 2011 10:19am Feb 6, 2011 10:19am
How long do you trade this way? Consistent profitable?
Thanks
tordi
  • #38
  • Feb 6, 2011 10:23am Feb 6, 2011 10:23am
Quoting tordi
How long do you trade this way? Consistent profitable?
Thanks
tordi
tordi, I could only trade it for a short period of two month, before I had an accident, which mad me stay in hospital until the last week. Now I want to continue it, because I believe, this has a great potential.
  • #39
  • Feb 6, 2011 10:31am Feb 6, 2011 10:31am
Quoting cash4u2
tordi, I could only trade it for a short period of two month, before I had an accident, which mad me stay in hospital until the last week. Now I want to continue it, because I believe, this has a great potential.
All the best, good luck and health for you. I will also test this. Looks good.

Tschau tordi
  • #40
  • Feb 6, 2011 10:32am Feb 6, 2011 10:32am
Quoting cash4u2
Correlation is important for three pairs hedging, because you need to know, where to sell and where to buy. But it is much safer like hedging two pairs.
Three pairs is like, two pairs to equalize the minus and plus and the third pair is the profitmaker.
Well I am sorry, but I do not agree with this. If you were to match up all off the lot sizes so they were equivalent for each currency in the set of three pairs, they would cancel each other out exactly and there is no connection to correlation of pairs. The only benefit in this system is the lot size differential and that is all. Now if you were to pick say two pairs that were strongly trending and use the third as your safety net, that might improve profits, but still nothing to do with correlation of the pairs. Correlations are not important here. the cancellation of the currencies are what is at play here.

At the end of the day, The Only Way to make any profit with this is to have an inefficiency in lot sizing between pairs ( your using the same lot size for all for example ) and no other form of setup will influence the outcome if all of the lot sizes were equivalent in terms of deposit currency.
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